We are in the middle of series of posts exploring the recent obstruction of trade case in Boise, Idaho against St. Luke’s Health System.
Click here for part one of this series.
The case in Boise against St. Luke's went to the heart of the entire premise of the hospital-centric integrated delivery system.
St. Luke's argued that it was buying physician practices in order to build a better delivery mousetrap, one that would address the problems of the fractured current system. They claimed their strategy, like many other hospital-based systems, would improve patient outcomes. The court generally agreed that if left intact, it could have had that effect.
But the antitrust laws are there to answer a very specific question that is relatively blind to particular policy leanings of one political party or the other. The issue before the court was whether St. Luke’s, with the acquisition of the Saltzer clinic, would have anticompetitive power in the Nampa market. The court concluded it would.
It also concluded there are other ways to achieve the desired outcomes of improved patient outcomes and lower cost besides having the big hospital system employ all of the physicians. This is a huge point.
There are several tests a court takes when assessing whether or not a player such as St. Luke's has amassed so much power as to make the market anticompetitive. One of those is market share.
The 'Findings of Fact and Conclusions of Law' discusses a highly complicated mathematical measure to calculate market share concentration. I must admit that this section of the judge’s report goes better with a nice cabernet in hand, but I battled through. There is this little index that ranges from 0 (a hypercompetitive market with an infinite number of opportunities for the consumer) to pure monopolistic 10,000 (only one choice).
The wizards behind this measure say that a market is highly concentrated (that is, consumers are in danger of getting the short end of the stick) if the index is calculated to be 2,500 or higher. They also say any particular merger that increases the measure from what it was by 200 points or more is presumed to 'enhance market power.'
The Saltzer deal caused the Nampa market index to jump to 6,219, an increase of 1,607 points due to this deal alone.
Boom. The economists have spoken.
So what does the Herfindahl-Hirschman Index mean in English?
Leverage, my friends, leverage.
According to Blue Cross of Idaho, the largest payer in the state, in 2007 St. Luke’s Boise hospital was receiving an average level of reimbursement compared to other facilities in the state. Between 2007 and early 2012, St. Luke’s acquired around 80 physician clinics in the area, all of this even before they acquired the big Saltzer clinic.
What happened because of those acquisitions?
In 2012, the St. Luke's system had three of the five top paid hospitals in Idaho and its top hospital was getting 21% more than the average Idaho hospital.
Anyone want to guess what the Blues would be facing in the next round of contract negotiations, what with the market now at the sizzling 6,219 on the HHI?
Boom. The payers have spoken.
Lofty visions aside, that kind of leverage does not benefit the good people of Idaho.
Boom. The judge has spoken.